double-declining-balance depreciation

Double-declining-balance depreciation

Double-Declining-Balance Depreciation Method

A way of calculating the depreciation of an asset that assumes the asset loses value at double the rate of the straight-line method. One calculates the DDB by depreciating double the straight-line value for the first year, and then depreciating the same percentage for each remaining year of the asset's usable life. DDB is a form of accelerated depreciation.

double-declining-balance depreciation

A depreciation method that records large depreciation expenses in the early years of an asset's life and reduced depreciation expenses in the later years of an asset's life. The acceleration of depreciation is designed to reduce taxable income and tax payments so that extra cash will be available for reinvestment. According to this method, depreciation is calculated by multiplying twice the straight-line depreciation rate by the asset's book value each year. See also Modified Accelerated Cost Recovery System.

In Table 1, the sum of the future net cash flows for an asset whose expected and actual cash flows mimic the allocations of double-declining-balance depreciation are compared to the carrying values that result from using straight-line depreciation and double-declining balance depreciation.

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